So you’ve taken a health insurance policy and unfortunately the time has come to claim it. You go the hospital, get checked up, treated and are presented with a bill. Typically, the health insurance company will take care of the entire expense as per the terms of your policy, and you will walk out healthier, and just as rich as you were when you were admitted in the hospital. But this isn’t the case with co-pay.
What is Health Insurance Co-Pay?
If your insurance policy has a co-pay clause, you agree to pay a part of the medical expense out of your own pocket, and the insurer will cover the rest. There are many insurance companies today that have co-pay clauses in their policies. For example: If your insurance policy has a co-pay (or co-insurance) clause of 10% and your medical expenditure has totally amounted to Rs.50,000, you will have to pay Rs.5,000 out of your own pocket and the insurer will cover the remaining Rs.45,000.
Why do insurance companies have co-pay clauses?
Apart from the obvious reason that the insurance company will be able to save a portion of its expense during claims, insurance companies also have co-pay clauses for the following reasons:
- Discourages people from making unnecessary claims, as they will have to pay a portion of the expense. Claims for medication and treatment sought to get over the common cold, or for some kind of regular gastric distress, could technically be charged back to the insurer. This results in a lot of unnecessary paperwork for both parties and a minimal claim amount. Co-pay discourages the misuse of health insurance policies.
- Discourages people from undergoing treatment in expensive hospitals and healthcare centers. Assume you have an insurance policy with a co-pay (or co-insurance) clause of 10%. Treatment for a health condition at a regular hospital may come up to Rs.10,000, the insurer will pay Rs.9,000 and you will only have to pay the remaining Rs.1,000. But if the medical treatment has been sought at an expensive hospital/institution, the total expense for the same treatment could be as high as Rs.40,000 (recent polls suggest that boutique hospitals, high-class medical centers and specialty centers charge up to 40% more for the same services and treatments). This means that you will end up paying Rs.4,000 out of your own pocket. This will discourage the average insurance holder from wasteful expenditure at more expensive hospitals.
- Encourages honest and judicious use of health insurance policies. The fact that co-payment means you will have to pay an amount out of your own pocket, means that you will see your hospitalization or medical treatment as an expense that you must incur as well. This will ensure that you use it right, as it brings with it a sense of ownership.
- Mitigates the risk and liability for the insurer. Insurance companies are huge businesses with huge profit and loss statements. What increases the balance in the loss column are payments made due to claims. A co-pay (or co-insurance) clause of 10% in all its policies means a direct 10% saving for the insurance company.
What are the disadvantages of co-pay?
Not every insurer in India chooses to add a co-pay clause to the insurance policy they sell you. This is because of a multitude of reasons, both in favour of the insurer and the insured:
- If the co-pay amount is too high it may deter the insured person from seeking life-saving medical attention and care – thus rendering the insurance policy completely useless.
- Medical insurance products and policies offered with co-pay are generally less popular, and less likely to be bought. A person who understands co-pay would choose a policy that does not have such clauses.
- Higher co-pay means less premium. While this is true, it is only beneficial for the insured person (you), as long as you don’t need to cash in your insurance policy. But if something happens, all that money you saved on premiums will have to paid towards the treatment expenses anyway.
Is a health insurance policy with co-pay the right choice for you?
Ideally policies with co pay should not be taken. But if you are unable to afford an insurance policy and adding a co pay clause makes a sizable difference to the premium outgo same can be evaluated. You should evaluate keeping in mind your existing physical condition, history of past diseases, pre-existing illnesses, or susceptibility to falling critically ill in the future. Remember it is only beneficial for you, as long as you don’t need to cash in your insurance policy. But if something happens, all the money saved on premiums can be wiped out.